States Sign Anti-Abusive Tax Shelter Agreement

Tax agencies in 34 states plus New York City today signed a joint agreement to share information among themselves on abusive tax shelters and illegal transactions, a move intended to strengthen their fight against this complex problem.

The document signed today focuses on the type of abusive tax transaction information to be shared, confirms the role of joint promoter audits and coordinated enforcement actions, and encourages active exchanges of case listings and documents.

California State Controller and Chair of the Franchise Tax Board Steve Westly added, “With California facing a record budget deficit, we can’t afford to let tax cheats take money away from schools, healthcare, and major projects like building freeways. We’re teaming up with other states to work smarter, catch more tax cheats, and collect the revenue they owe.”

“Abusive tax avoidance transactions have become a threat to the fiscal health of our states,” explained Stephen M. Cordi, Deputy Comptroller for Maryland and president of the Federation of Tax Administrators (FTA), an association of the tax agencies in all states, Washington, D.C., and New York City. “It’s hard to overstate the size of the problem, or the difficulty of dealing with it in an efficient and systematic way.”

“These schemes depend on dozens of layers of transactions – each one intended to bury the taxable income a little deeper. The layers are then scattered among any number of states. We can only uncover these types of schemes by sharing knowledge and by having a close working relationship with our sister states.”

As New York State Department of Taxation and Finance Commissioner Andrew S. Eristoff explained, “Working with the IRS and other states, we will scrutinize major accounting firms, tax practitioners, and other professional firms who may be or have been involved in promoting these illegal schemes, which allow companies and individuals to evade millions of dollars in taxes. The complexity of these transactions doesn’t mitigate the fact that these companies and individuals are engaged in potentially criminal acts, ripping off the vast majority of honest taxpayers.”

State tax agencies routinely share confidential tax data with one another. For more than 10 years FTA has facilitated this activity by developing and sponsoring the Uniform Exchange of Information Agreement. Each state’s statute spells out the manner in which confidential data must be shared, stored, and disposed of. The multistate disclosure agreement is the written authorization required by each state’s statute. Today’s agreement specifies the types of work that will be done together to combat abusive and illegal transactions.

The new agreement complements one signed last September between the IRS and 45 states, Washington, D.C., and New York City. Under the terms of the Abusive Tax Avoidance Transactions (ATAT) partnership, the federal and state governments agreed to coordinate their efforts and share data on illegal schemes that evade both federal and state taxes.

However, there are abusive shelters and illegal transactions that are engineered to avoid state taxation only, particularly those involving the taxation of corporations, partnerships, and pass-through entities. Today’s agreement provides a formal structure for the states to notify one another when they uncover one of these new schemes, to share insights on new compliance thinking, and to point out potentially fruitful directions for audit exploration.

The states that signed today’s Memorandum of Agreement are as follows. More states are expected to sign in the coming weeks.

  1. Alabama
  2. Arizona
  3. Arkansas
  4. California
  5. Colorado
  6. Connecticut
  7. Delaware
  8. Hawaii
  9. Idaho
  10. Illinois
  11. Indiana
  12. Iowa
  1. Kansas
  2. Louisiana
  3. Maine
  4. Minnesota
  5. Missouri
  6. Nebraska
  7. New Jersey
  8. New Mexico
  9. New York City
  10. New York State
  11. North Carolina
  12. Ohio
  1. Oklahoma
  2. Pennsylvania
  3. Rhode Island
  4. South Carolina
  5. Tennessee
  6. Utah
  7. Vermont
  8. Virginia
  9. Washington
  10. West Virginia
  11. Wisconsin

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